The COVID-19 pandemic, though devastating, is a surprisingly useful lever for improving a company’s resilience in the face not only of infectious disease, but also of other more common shocks, including cyberattacks, floods, fires, hurricanes, earthquakes, economic downturns and climate change.
For CEOs, the deadly coronavirus has instilled valuable lessons in risk management and continuity planning. Let me share seven that I’ve learned:
1. Focus on supply chains. As we’re witnessing, unexpected events can knock out operations in large geographical swaths, dealing tremendous blows to companies that lack a plan B, whether it’s having backup facilities, alternative suppliers or big inventories. Where you’re doing business matters: Although a pandemic knows no geographic boundaries, certain countries have more resilient business environments than others, foretelling which regions may be best positioned for rebounding faster as the pandemic wanes. FM Global ranks nearly 130 countries by the resilience of their business environments, overall and separately, according to 12 resilience measures like inherent cyber risk, natural hazard risk, economic productivity, supply chain visibility and control of corruption. Consider geographical resilience as a factor in your pandemic recovery strategy as you decide where to site facilities, build supply chain redundancy and cultivate markets.
2. Quantify risk. Business risk assessment is a science and it involves looking at your entire operation, determining which functions and facilities contribute most to profit, analyzing the threats to each, and shoring up the most glaring vulnerabilities first. Much has been written on institutional denial and the deceptive gut-level calculation that a catastrophe “probably won’t happen during my tenure as CEO.” Another misconception is that loss in a catastrophe is more or less inevitable. In fact, the majority of loss is preventable. The bottom line is it’s far better for your company to prevent a loss than to experience one. Suffering an avoidable loss can have permanent impact on your profit, market share, growth, investor confidence and overall value. Invest in prevention when and where you can.
3. Plan for shutdowns. Takeoffs and landings are the riskiest parts of aviation, and so it can be for business shutdowns and restarts. Although you as a chief executive won’t get mired in the details of shutdown planning, understand that one of the biggest and potentially costliest hazards is waiting too long in the throes of a catastrophe to cease operation. This institutional reluctance to halt production (and revenue flow) even as, say, rising floodwaters are buffeting the walls of the building is another form of denial. Many millions have been lost by waiting to abandon production until it’s too late. Make sure you have a decision tree for shutdowns and a loss-prevention culture.
4. Keep watch on vacant or idled properties. When everyone’s working from home, make sure your operations team has essential personnel in all your geographies doing daily rounds for criminal activity, signs of smoke or new property damage. Ensure they keep fire protection equipment activated. It’s also a great time to commission overdue maintenance.
5. Prepare carefully for restarts. There are several big business continuity risks around resuming normal operations. Many a restart has triggered a disruption leading immediately to another shutdown. The classic case is maintenance equipment left in pipes, vessels and machines or improper reassembly after inspection. Be especially careful if your facilities have switched over to pandemic-related production (e.g., distilleries making hand sanitizer). The coronavirus is also throwing the business world a curveball on staffing: Rare is the company restarting with the same personnel levels in the same configuration. Social distancing will likely require significant modifications. Other planning considerations: Do you have sufficient inventory to restart? Will your suppliers be ready when you are?
6. Formalize and execute. All of these considerations should inform a carefully crafted business continuity plan that will spell out ahead of time procedures for emergency response, evacuation, business recovery, IT recovery, crisis communications and supply chain continuity. Ensure the plan covers the entire company and all its operations; too often, companies plan in silos and aren’t ready to coordinate during a crisis. Also plan for worst-case scenarios: It’s common to plan for 30- to 60-day disruptions, but the worst case—say, a building that burns to the ground—can disrupt an organization for a much longer period. Make sure your enterprise risk team has done all it can to ensure the resilience and readiness of key suppliers.
7. Appoint a business continuity team. Ensure that members of the team embrace the continuity plan and train on a variety of scenarios – including cyber attack, fire, natural disaster and infectious disease. When operations are back to normal, have them perform that testing on the tabletop and in the occasional drill. Refine the plan as test outcomes indicate. And don’t forget to study your role in the plan.
While the current pandemic has delivered an exogenous shock to many businesses, it is teaching valuable lessons to help you prepare your organization for the next disruption. And that’s worth considering given that a hurricane season predicted to bring above-normal activity is in the offing and other natural hazards are ever present. One thing is for certain: Your company’s stakeholders will be watching. Observe the lessons, learn from them and be the most resilient business you can be.
It will pay off.